The Programmatic Globe: Russia

Our head of Global Advisory Services goes deep on the state of programmatic and e-commerce in Russia

Here at Sociomantic, we’re lucky enough to get to work with marketers in over 60 countries, helping them from our 19 offices around the globe to take advantage of the many benefits of programmatic advertising technology powered by local market expertise.

In working across these diverse regions, one thing has become crystal clear: when it comes to e-commerce and programmatic marketing, no two countries are alike! And no one has a better view on the differences and eccentricities of these different markets than our VP Global Advisory Services, Lothar Krause.

That’s why we’ve invited him, with support from each of our local teams, to share unique, market-specific insights about the ins-and-outs, the ups-and-downs, the triumphs and challenges of programmatic advertising in each of the countries or regions that we are stationed. Next up: Russia!

In early September this year, Sociomantic Moscow joyfully celebrated its second birthday together with friends from the e-commerce and travel industries. Three years after our first campaigns went live in Russia, it is safe to say that our journey has been tremendously exciting and successful. As a global player we entered this complex yet quickly-growing market with a distinct culture and a strong need for localization. We have seen our fair share of Russian singularities and therefore don’t want to withhold sharing our experiences of this market’s unique characteristics.

Connecting the East and the West

With its 17.1 million square kilometers, Russia is by far the largest country in the world. From the borders of Scandinavia and the Baltic States to the Bering Sea, Russia spans two continents and connects Asia, the Middle East and Europe. However, from a cultural, economic and political perspective, the country remains unique. That’s why many international companies are often hesitant to set up shop here. As a result, a lot of big local players have risen up that have contributed to Russia’s dominant economic position, and that have also started to successfully expand to other emerging markets.

Growth and huge market potential are key attributes of this market. Currently, Russia’s e-commerce market is valued at 16.5 billion Euros (eMarketer, 2014) – a size comparable to countries like Italy, Brazil or India — and estimated to grow by 25-30 percent annually over the next years (EWDN). The country’s digital evolution is mainly spurred by an increasing number of internet users (currently 58 percent) and a stronger affinity for smartphones (35 percent penetration, 27 percent growth). These figures are particularly impressive when taking a look at the country’s geographic situation.

Nine Time Zones, Four Climate Zones, Two Metropolises

If you are planning to travel from the westernmost point of Russia to its eastern border, you’ll have a journey of more than 10,000 km ahead of you. While your trip can expose you to 30 degrees Celsius in the summer and -30 degrees Celsius in the winter, you need to adjust your watch a total of 9 times. It comes as no surprise that this poses incredible challenges to Russia’s retail industry.

Delivery is probably the biggest problem for Russian e-commerce players. The safest way to have a T-Shirt delivered from Moscow to Vladivostok (~9000 kilometers) are private commercial courier services. While imposing higher costs on consumers, they are usually able to deliver packages safely within a few days. If you are, however, planning to have your T-Shirt delivered by Russian Post, it could take significantly longer. To complicate matters, 70 percent of Russian deliveries are paid on delivery. This not only forces couriers to deliver to doorsteps, it also gives customers the option to refuse payment and send the order back.

While these circumstances remain inhibitors to Russian e-commerce, the situation is vastly different in the country’s two major cities – Moscow and St Petersburg. In fact, it is common practice for small online shops to deliver to Moscow or St Petersburg without charge or even exclusively. As a result, the large majority of Russia’s financial potential, innovative lifeblood and modern technology is centralized in these two cities.

Think Local, Act Local

If you want to get a peek into what is so different in Russia, ask your Russian pals where they search online or connect with friends. Google reaches less than a third of internet users while local powerhouse Yandex controls almost 60 percent of the Russian online Search market. Similarly, only 17 percent update their statuses on Facebook. If you conclude Russians are not social, you’re wrong though. Two out of three people are active users on Vkontakte and Odnoklassniki, the two biggest Russian social networks.

As a result, a truly local approach was our intention from day one. We understood that a Russian team with lots of experience in the online industry would be better equipped for the market’s peculiarities than a group of trained expats. While Russians for example prefer to speak their language and pay less attention to fancy outfits in meetings, they like to showcase expensive objects to demonstrate status. Therefore it proved important to adjust to the market’s requirements in order to evoke trust and form important partnerships early on.

Crossing the Border

Local dominance can be both an opportunity and a threat for international players entering Russia. Particularly, a phenomenon called “cross-border” offers a lot of potential for foreign investment. Many Russians have a tendency to shop online to make use of a better selection of products and lower prices. A range of online retailers from China, the EU and the US make up an estimated 50 percent of online shopping volume in Russia. There are even big online players like bay.ru or shopotam.ru that specialize on translating product descriptions and ensuring safe doorstep deliveries.

In contrast, more and more trade sanctions on foreign products and a growing amount of restrictions regarding information transmission (e.g. blogs have to be registered with the government) complicate the market entrance of foreign players. Companies like Google not only have to step up their service levels to compete with local competition, they also constantly need to adjust their policies because of legislative changes. That’s why, in order to offer the highest possible service levels to our customers in this market, we decided to work with local contracts after opening our office in Moscow.

Where is the Market Heading?

No doubt, Russia is unique. In order to succeed, international companies need to be quick in anticipating both the country’s vast opportunities and potential roadblocks. We learned that flexibility is key if global players want to win in Russia and contribute to the country’s huge digital potential. In 2013, Russia’s digital ad spend reached 1.87 billion Euro with an expected annual growth rate of 18 percent. While RTB currently only makes up 1 percent of the digital ad market, it is growing by an astonishing 88 percent.

Programmatic buying is gaining as much importance in Russia as CRM. In light of the country’s geographic challenges, there is hardly any other region where intelligent CRM offers greater opportunities. Given that 70 percent of Russians pay on delivery, smart advertisers can calculate the monetization potential of individual customers by simply analyzing delivery fulfillment rates. Coupled with the potential to approach Russian online users in real-time, e-commerce players with an intelligent CRM logic will eventually win in this complex yet exhilarating market.

From a Local

Our Russian Managing Director, Michael Balakin, sees similar trends:

“The falling Ruble exchange rate is decreasing customer purchasing power, and the activity of investors here has put Russian marketers in a somewhat challenging situation. More than ever, they should focus on the targeting and measurability of their marketing efforts. It’s critical that they have the ability to precisely calculate return on their marketing investments and fight for customer’s loyalty given the current state of the market. Therefore the demand for precise, performance-driven solutions that help them to reach their target audiences effectively have started to become increasingly important, even for those advertisers who aimed only for reach and brand-awareness in the past.”

Want to learn more about using programmatic display to drive sales growth and customer loyalty in Russia? Be sure to visit our Russian blog or reach out to our Moscow team to learn more.